UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-09341

iCAD, Inc.

(Exact name of registrant as specified in its charter)

Delaware	02-0377419
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

98 Spit Brook Road, Suite 100, Nashua, NH	03062
(Address of principal executive offices)	(Zip Code)

(603) 882-5200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

symbol(s)

Name of each exchange

on which registered

Common Stock, $0.01 par value

ICAD

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒.

As of the close of business on ~~May~~August 10, 2023, there were 25,446,407 shares outstanding of the registrant’s Common Stock, $0.01 par value.

Table of Contents

iCAD, Inc.

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements

	Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2023 (unaudited) and December 31, 2022	1

	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended ~~March 31,~~June 30, 2023 and 2022	2

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and six months ended ~~March 31,~~June 30, 2023 and 2022	3

	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3	Quantitative and Qualitative Disclosures about Market Risk	2224

Item 4	Controls and Procedures	2325

PART II	OTHER INFORMATION	2426

Item 1A	Risk Factors	2426

Item 6	Exhibits	2527

	Signatures	2628

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iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except for share data)

(Unaudited)

	*March 31,*			*December 31,*			*June 30,*			*December 31,*
	*2023*			*2022*			*2023*			*2022*
Assets
Current assets:
Cash and cash equivalents	$	19,663		$	21,313		$	19,037		$	21,313
Trade accounts receivable, net of allowance for credit losses of $922 as of both March 31, 2023 and December 31, 2022		7,381			8,898
Trade accounts receivable, net of allowance for credit losses of $984 and $922 as of June 30, 2023 and December 31, 2022, respectively								5,747			8,898
Inventory, net		4,866			5,389			4,248			5,389
Prepaid expenses and other current assets		2,292			2,641			2,304			2,641
Total current assets		34,202			38,241			31,336			38,241
Property and equipment, net of accumulated depreciation of $2,151 and $2,135 as of March 31, 2023 and December 31, 2022, respectively		1,153			1,074
Property and equipment, net of accumulated depreciation of $2,273 and $2,135 as of June 30, 2023 and December 31, 2022, respectively								1,471			1,074
Operating lease assets		3,200			3,361			3,113			3,361
Other assets		55			69			54			69
Intangible assets, net of accumulated amortization of $8,980 and $8,932 as of March 31, 2023 and December 31, 2022, respectively		436			482
Intangible assets, net of accumulated amortization of $8,490 and $8,932 as of June 30, 2023 and December 31, 2022, respectively								388			482
Goodwill		8,362			8,362			8,362			8,362
Deferred tax assets		111			116			108			116
Total assets	$	47,519		$	51,705		$	44,832		$	51,705
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,888		$	1,973		$	857		$	1,973
Accrued and other expenses		4,213			4,681			4,363			4,681
Lease payable—current portion		569			582			644			582
Deferred revenue—current portion		6,211			6,216			6,027			6,216
Total current liabilities		12,881			13,452			11,891			13,452
Lease payable, net of current		2,639			2,803			2,478			2,803
Deferred revenue, net of current		283			542			283			542
Deferred tax		6			6			6			6
Total liabilities		15,809			16,803			14,658			16,803

Commitments and Contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.01 par value: authorized 1,000,000 shares; none issued.		—			—			—			—
Common stock, $0.01 par value: authorized 60,000,000 shares; issued 25,446,407 as of both March 31, 2023 and December 31, 2022.
Outstanding 25,260,576 as of both March 31, 2023 and December 31, 2022.		254			254
Common stock, $0.01 par value: authorized 60,000,000 shares; issued 25,446,407 as of both June 30, 2023 and December 31, 2022; outstanding 25,260,576 as of both June 30, 2023 and December 31, 2022.								254			254
Additional paid-in capital		303,485			302,899			303,699			302,899
Accumulated deficit		(270,614	)		(266,836	)		(272,364	)		(266,836	)
Treasury stock at cost, 185,831 shares as of both March 31, 2023 and December 31, 2022		(1,415	)		(1,415	)
Treasury stock at cost, 185,831 shares as of both June 30, 2023 and December 31, 2022								(1,415	)		(1,415	)
Total stockholders’ equity		31,710			34,902			30,174			34,902
Total liabilities and stockholders’ equity	$	47,519		$	51,705		$	44,832		$	51,705

See accompanying notes to condensed consolidated financial statements.

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iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except for per share data)

(Unaudited)

	*Three Months Ended*						*Three Months Ended*						*Six Months Ended*
	*March 31,*						*June 30,*						*June 30,*
	*2023*			*2022*			*2023*			*2022*			*2023*			*2022*
Revenue:
Products	$	2,744		$	4,560		$	2,644		$	4,475		$	5,387		$	9,035
Service and supplies		3,034			2,963			3,221			3,100			6,256			6,063
Total revenue		5,778			7,523			5,865			7,575			11,643			15,098
Cost of revenue:
Products		586			1,087			461			1,008			1,047			2,095
Service and supplies		993			1,049			1,000			1,001			1,993			2,050
Amortization and depreciation		69			75			55			75			125			150
Total cost of revenue		1,648			2,211			1,516			2,084			3,165			4,295
Gross profit		4,130			5,312			4,349			5,491			8,478			10,803
Operating expenses:
Engineering and product development		2,281			2,275			1,263			2,367			3,544			4,642
Marketing and sales		2,857			3,565			2,112			3,435			4,967			7,000
General and administrative		2,862			2,931			2,832			2,742			5,695			5,673
Amortization and depreciation		55			63			65			61			120			124
Total operating expenses		8,055			8,834			6,272			8,605			14,326			17,439
Loss from operations		(3,925	)		(3,522	)		(1,923	)		(3,114	)		(5,848	)		(6,636	)
Other income/ (expense):
Interest expense		—			(9	)		—			—			—			(1	)
Interest income		150			—			182			14			332			16
Other income (expense), net		2			(13	)		(5	)		(18	)		(3	)		(41	)
Other income (expense), net		152			(22	)		177			(4	)		329			(26	)
Loss before provision for income taxes		(3,773	)		(3,544	)		(1,746	)		(3,118	)		(5,519	)		(6,662	)
Provision for tax expense		(5	)		(1	)		(4	)		—			(9	)		(1	)
Net loss and comprehensive loss	$	(3,778	)	$	(3,545	)	$	(1,750	)	$	(3,118	)	$	(5,528	)	$	(6,663	)
Net loss per share:
Basic and diluted	$	(0.15	)	$	(0.14	)	$	(0.07	)	$	(0.12	)	$	(0.22	)	$	(0.26	)
Weighted average number of shares used in computing loss per share:
Basic and diluted		25,261			25,160			25,261			25,185			25,261			25,172

See accompanying notes to condensed consolidated financial statements.

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iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except shares)

(Unaudited)

	*For the three months ended March 31, 2023*															*For the three months ended June 30, 2023*
	*Common Stock*				*Additional*											*Common Stock*				*Additional*
	*Number of*				*Paid-in*		*Accumulated*			*Treasury*			*Stockholders’*			*Number of*				*Paid-in*		*Accumulated*			*Treasury*			*Stockholders’*
	*Shares Issued*		*Par Value*		*Capital*		*Deficit*			*Stock*			*Equity*			*Shares Issued*		*Par Value*		*Capital*		*Deficit*			*Stock*			*Equity*
Balance at December 31, 2022		25,446,407	$	254	$	302,899	$	(266,836	)	$	(1,415	)	$	34,902
Balance at March 31, 2023																	25,446,407	$	254	$	303,485	$	(270,614	)	$	(1,415	)	$	31,710
Stock-based compensation		—		—		586		—			—			586			—		—		214		—			—			214
Net loss		—		—		—		(3,778	)		—			(3,778	)		—		—		—		(1,750	)		—			(1,750	)
Balance at March 31, 2023		25,446,407	$	254	$	303,485	$	(270,614	)	$	(1,415	)	$	31,710
Balance at June 30, 2023																	25,446,407	$	254	$	303,699	$	(272,364	)	$	(1,415	)	$	30,174

For the three months ended March 31, 2022

Common Stock

Additional

Number of

Paid-in

Accumulated

Treasury

Stockholders’

Shares Issued

Par Value

Capital

Deficit

Stock

Equity

Balance at December 31, 2021
25,326,086 $ 253 $ 300,859 $ (253,180 ) $ (1,415 ) $ 46,517
Issuance of common stock related to vesting of restricted stock
875 1 — — — —
Issuance of common stock pursuant to stock option plans
22,833 1 66 — — 66
Issuance of common stock pursuant Employee Stock Purchase Plans
9,381 — 60 — — 60
Stock-based compensation
— — 655 — — 655
Net loss
— — — (3,545 ) — (3,545 )
Balance at March 31, 2022
25,359,175 $ 253 $ 301,640 $ (256,725 ) $ (1,415 ) $ 43,753

	*For the six months ended June 30, 2023*
	*Common Stock*				*Additional*
	*Number of*				*Paid-in*		*Accumulated*			*Treasury*			*Stockholders*
	*Shares Issued*		*Par Value*		*Capital*		*Deficit*			*Stock*			*Equity*
Balance at December 31, 2022		25,446,407	$	254	$	302,899	$	(266,836	)	$	(1,415	)	$	34,902
Stock-based compensation		—		—		800		—			—			800
Net loss		—		—		—		(5,528	)		—			(5,528	)
Balance at June 30, 2023		25,446,407	$	254	$	303,699	$	(272,364	)	$	(1,415	)	$	30,174

	*For the three months ended June 30, 2022*
	*Common Stock*				*Additional*
	*Number of*				*Paid-in*		*Accumulated*			*Treasury*			*Stockholders’*
	*Shares Issued*		*Par Value*		*Capital*		*Deficit*			*Stock*			*Equity*
Balance at March 31, 2022		25,359,175	$	253	$	301,640	$	(256,725	)	$	(1,415	)	$	43,753
Issuance of common stock pursuant to stock option plans		6,000		1		12		—			—			13
Issuance of common stock pursuant Employee Stock Purchase Plans		8,683		—		33		—			—			33
Stock-based compensation		—		—		309		—			—			309
Net loss		—		—		—		(3,118	)		—			(3,118	)
Balance at June 30, 2022		25,373,858	$	254	$	301,994	$	(259,843	)	$	(1,415	)	$	40,990

	*For the six months ended June 30, 2022*
	*Common Stock*				*Additional*
	*Number of*				*Paid-in*		*Accumulated*			*Treasury*			*Stockholders’*
	*Shares Issued*		*Par Value*		*Capital*		*Deficit*			*Stock*			*Equity*
Balance at December 31, 2021		25,326,086	$	253	$	300,859	$	(253,180	)	$	(1,415	)	$	46,517
Issuance of common stock related to vesting of restricted stock		875		—		—		—			—			—
Issuance of common stock pursuant to stock option plans		28,833		1		78		—			—			79
Issuance of common stock pursuant Employee Stock Purchase Plans		18,064		—		93		—			—			93
Stock-based compensation		—		—		964		—			—			964
Net loss		—		—		—		(6,663	)		—			(6,663	)
Balance at June 30, 2022		25,373,858	$	254	$	301,994	$	(259,843	)	$	(1,415	)	$	40,990

See accompanying notes to condensed consolidated financial statements.

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iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	*For the Three Months ended*						*For the Six Months ended*
	*March 31,*						*June 30,*
	*2023*			*2022*			*2023*			*2022*
Cash flow from operating activities:
Net loss	$	(3,778	)	$	(3,545	)	$	(5,528	)	$	(6,663	)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization		46			53			94			105
Depreciation		78			86			138			169
Non-cash lease expense		161			200			248			391
Bad debt provision		—			305			62			510
Stock-based compensation		586			655			800			964
Deferred tax		5			1			8			—
Changes in operating assets and liabilities:
Accounts receivable		1,517			(1,723	)		3,089			(1,790	)
Inventory		523			(565	)		1,141			(830	)
Prepaid and other assets		363			653			352			853
Accounts payable		(120	)		(84	)		(1,116	)		(581	)
Accrued and other expenses		(468	)		(514	)		(510	)		(371	)
Lease liabilities		(177	)		(214	)		(263	)		(425	)
Deferred revenue		(264	)		243			(448	)		659
Total adjustments		2,250			(904	)		3,595			(346	)
Net cash used for operating activities		(1,528	)		(4,449	)		(1,933	)		(7,009	)
Cash flow from investing activities:
Additions to patents, technology and other		—			(10	)		—			(10	)
Additions to property and equipment		(122	)		(151	)		(307	)		(255	)
Capitalization of internal-use software development costs								(36	)		—
Net cash used for investing activities		(122	)		(161	)		(343	)		(265	)
Cash flow from financing activities:
Proceeds from option exercises pursuant to stock option plans		—			66			—			79
Proceeds from issuance of common stock pursuant to Employee Stock Purchase Plans		—			60			—			93
Net cash provided by financing activities		—			126			—			172
(Decrease) increase in cash and cash equivalents		(1,650	)		(4,484	)
Decrease in cash and cash equivalents								(2,276	)		(7,102	)
Cash and cash equivalents, beginning of period		21,313			34,282			21,313			34,282
Cash and cash equivalents, end of period	$	19,663		$	29,798		$	19,037		$	27,180
Supplemental disclosure of cash flow information:
Interest paid	$	—		$	9		$	—		$	9
Amendment to right-of-use assets obtained in exchange for operating lease liabilities							$	—		$	2,434

See accompanying notes to condensed consolidated financial statements.

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iCAD, INC. AND SUBSIDIARIES

(In thousands, except for share and per share data or as noted)

Notes to Condensed Consolidated Financial Statements:

Note 1 – Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of iCAD, Inc. and its subsidiaries (together “iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. It is reasonably possible that changes may occur in the near term that would affect management’s estimates with respect to assets and liabilities. In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company at ~~March 31,~~June 30, 2023, the results of operations of the Company for the three and sixmonths ended ~~March 31,~~June 30, 2023 and 2022, cash flows of the Company for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, and stockholders’ equity ~~for~~of the Company for the three and sixmonths ended ~~March 31,~~June 30, 2023 and 2022.

Although the Company believes that the disclosures made in these interim financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023. The results for the three and sixmonths ended ~~March 31,~~June 30, 2023, are not necessarily indicative of the results that may be expected for fiscal year ending December 31, 2023, or any interim or any future period.

Principles of Consolidation and Business Segments

The condensed consolidated financial statements include the accounts of iCAD, Inc. and its wholly owned subsidiaries: Xoft, Inc., Xoft Solutions, LLC, iCAD France, LLC and iCAD Italy, LLC. All material inter-company transactions and balances have been eliminated in consolidation.

The Company reports the results of two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of advanced image analysis and workflow products for the detection of cancer. The Therapy segment consists of radiation therapy (“Xoft”, “Axxent”) products for the treatment of certain cancers.

Risk and Uncertainty

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, the United States and most countries of the world imposed some level of unprecedented restrictions such as travel bans and business closures which caused substantial reductions in economic activity. As a provider of devices and services to the health care industry, the Company believes its operations have been materially affected in all periods presented. While the worst of the disruptions appear to have subsided as of ~~March 31,~~June 30, 2023, the Company continues to be impacted by slowness in the overall economic recovery. The Company’s expected results for future periods could reflect a continuing negative impact from the COVID-19 pandemic for similar or additional reasons.

In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region has continued through ~~March 31,~~June 30, 2023 and beyond. Economic, civil, military and political uncertainty may arise or increase in regions where the Company operates or derives revenue. Further, countries from which the Company derives revenue may experience military action and/or civil and political unrest; may be subject to government export controls, economic sanctions, embargoes, or trade restrictions; and experience currency, inflation, and interest rate uncertainties. While the impact to the Company has been limited to date, it is not possible to predict the potential outcome should the conflict expand and/or additional sanctions be imposed. For the three and sixmonths ended ~~March 31,~~ June 30,2023,approximately ~~15%~~20% and 17%, respectively, of the Company's revenue was derived from customers located outside the United States.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 ~~replaces~~replaced the ~~existing~~then-existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. In November 2019, the FASB elected to defer the adoption date of ASU 2016-13 for public business entities that meet the definition of a smaller reporting company to fiscal years beginning after December 15, 2022. Early adoption of the guidance in ASU 2016-13 iswas permitted. The Company adopted ASU 2016-13 effective January 1, 2023. Adoption caused the Company to modify its approach to estimating its allowance for potentially uncollectable accounts receivable. Specifically, the Company began applying an expected credit loss model that uses historical loss rates of its accounts receivable for the previous twelve months as well as expectations about the future where the Company has been able to develop forecasts to support its estimates. Adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

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~~Recently Issued Accounting Standards (~~~~Not~~ ~~Yet Adopted)~~

~~There are~~ no ~~recently issued accounting pronouncements that have~~ ~~not~~ ~~yet been adopted as of~~ ~~March 31, 2023~~ ~~that are expected to have a material impact on the Company's financial statements.~~

Note 2 – Fair Value Measurements

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company applies the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following:

•

Level 1 - Quoted prices in active markets for identical assets or liabilities.

•

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value

The assigned level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Money market funds included in cash and cash equivalents in the accompanying consolidated balance sheet are considered a Level 1 measurement as they are valued at quoted market prices in active markets.

The following table sets forth the Company’s assets which are measured at fair value on a recurring basis by level within the fair value hierarchy:

Fair Value Measurements as of ~~March 31,~~June 30, 2023

Level 1

Level 2

Level 3

Total

Assets

Money market accounts
$ 14,949 $ — $ — $ 14,949
Total Assets
$ 14,949 $ — $ — $ 14,949

	*Level 1*		*Level 2*		*Level 3*		*Total*
Assets
Money market accounts	$	15,811	$	—	$	—	$	15,811
Total Assets	$	15,811	$	—	$	—	$	15,811

Fair Value Measurements as of December 31, 2022

	*Level 1*		*Level 2*		*Level 3*		*Total*
Assets
Money market accounts	$	15,067	$	—	$	—	$	15,067
Total Assets	$	15,067	$	—	$	—	$	15,067

There were no Level 2 or 3 instruments measured at fair value as of ~~March 31,~~June 30, 2023 or December 31, 2022.

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Note 3 - Revenue

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.

Disaggregation of Revenue

The following tables presents the Company’s revenues disaggregated by major good or service line, timing of revenue recognition, and sales channel, reconciled to its reportable segments.

	*Three months ended March 31, 2023*						*Three months ended June 30, 2023*
	*Reportable Segments*						*Reportable Segments*
	*Detection*		*Therapy*		*Total*		*Detection*		*Therapy*		*Total*
Major Goods/Service Lines
Products	$	2,460	$	284	$	2,744	$	2,301	$	343	$	2,644
Service contracts		1,874		372		2,246		1,870		396		2,266
Supply and source usage agreements		—		493		493		—		460		460
Disposable applicators		—		225		225		—		459		459
Other		—		70		70		—		36		36
	$	4,334	$	1,444	$	5,778	$	4,171	$	1,694	$	5,865
Timing of Revenue Recognition
Goods transferred at a point in time	$	2,028	$	608	$	2,636	$	1,876	$	867	$	2,743
Services transferred over time		2,306		836		3,142		2,295		827		3,122
	$	4,334	$	1,444	$	5,778	$	4,171	$	1,694	$	5,865
Sales Channels
Direct sales force	$	2,778	$	1,056	$	3,834		2,743	$	1,124	$	3,867
OEM partners		1,556		—		1,556		1,428		570		1,998
Channel partners		—		388		388		—		—		—
	$	4,334	$	1,444	$	5,778	$	4,171	$	1,694	$	5,865

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	*Three months ended March 31, 2022*						*Six months ended June 30, 2023*
	*Reportable Segments*						*Reportable Segments*
	*Detection*		*Therapy*		*Total*		*Detection*		*Therapy*		*Total*
Major Goods/Service Lines
Products	$	3,864	$	696	$	4,560	$	4,762	$	626	$	5,388
Service contracts		1,657		386		2,043		3,744		799		4,543
Supply and source usage agreements		—		413		413		—		952		952
Disposable applicators		—		415		415		—		685		685
Other		—		92		92		—		75		75
	$	5,521	$	2,002	$	7,523	$	8,506	$	3,137	$	11,643
Timing of Revenue Recognition
Goods transferred at a point in time	$	3,881	$	1,264	$	5,145	$	3,945	$	1,484	$	5,429
Services transferred over time		1,640		738		2,378		4,561		1,653		6,214
	$	5,521	$	2,002	$	7,523	$	8,506	$	3,137	$	11,643
Sales Channels
Direct sales force	$	2,895	$	815	$	3,710	$	5,461	$	2,179	$	7,640
OEM partners		2,626		—		2,626		3,045		—		3,045
Channel partners		—		1,187		1,187		—		958		958
	$	5,521	$	2,002	$	7,523	$	8,506	$	3,137	$	11,643

	*Three months ended June 30, 2022*
	*Reportable Segments*
	*Detection*		*Therapy*		*Total*
Major Goods/Service Lines
Products	$	3,467	$	1,008	$	4,475
Service contracts		1,822		361		2,183
Supply and source usage agreements		—		367		367
Disposable applicators		—		463		463
Other		—		87		87
	$	5,289	$	2,286	$	7,575
Timing of Revenue Recognition
Goods transferred at a point in time	$	3,455	$	1,547	$	5,002
Services transferred over time		1,834		739		2,573
	$	5,289	$	2,286	$	7,575
Sales Channels
Direct sales force	$	3,505	$	703	$	4,208
OEM partners		1,784		—		1,784
Channel partners		—		1,583		1,583
	$	5,289	$	2,286	$	7,575

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	*Six months ended June 30, 2022*
	*Reportable Segments*
	*Detection*		*Therapy*		*Total*
Major Goods/Service Lines
Products	$	7,330	$	1,705	$	9,035
Service contracts		3,479		747		4,226
Supply and source usage agreements		—		780		780
Disposable applicators		—		878		878
Other		—		179		179
	$	10,809	$	4,289	$	15,098
Timing of Revenue Recognition
Goods transferred at a point in time	$	7,335	$	2,812	$	10,147
Services transferred over time		3,474		1,477		4,951
	$	10,809	$	4,289	$	15,098
Sales Channels
Direct sales force	$	6,399	$	1,519	$	7,918
OEM partners		4,410		—		4,410
Channel partners		—		2,770		2,770
	$	10,809	$	4,289	$	15,098

Products. Product revenue consists of sales of cancer detection systems and perpetual licenses and cancer therapy systems and cancer therapy applicators. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer.

Service. The Company sells service contracts in which the Company provides professional services including product installations, maintenance, training and service repairs, and in certain cases leases equipment to hospitals, imaging centers, radiological practices and radiation oncologists and treatment centers. The service contracts range from 12 months to 48 months. The Company typically receives payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the agreement.

Sources and Source Usage Agreements. The Xoft Axxent controller utilizes a miniaturized high dose rate, low energy X-ray source (a "source") to apply the radiation dose directly to the size and shape of the cancerous area while sparing healthy tissue and organs. Customers are able to purchase sources as needed or through a contract for a stated number of sources over a term (a "source usage agreement"). Revenue from sources is recognized upon transfer of control to the customer. Revenue from source usage agreements is recognized on a straight-line basis over the term of the source agreement.

Disposable applicators. Revenue for the sale of disposable applicators is recognized upon the transfer of control to the customer.

Other. Other revenue consists primarily of miscellaneous products and services. The Company transfers control and recognizes a sale when the installation services are performed or when the Company ships the product from the Company’s manufacturing or warehouse facility to the customer.

Contract Balances

Contract liabilities are a component of deferred revenue, current contract assets are a component of prepaid and other assets and non-current contract assets are a component of other assets. The following table provides information about receivables, current and non-current contract assets, and contract liabilities from contracts with customers.

Contract balances

	*Balance at*		*Balance at*		*Balance at*		*Balance at*
	*March 31, 2023*		*December 31, 2022*		*June 30, 2023*		*December 31, 2022*
Receivables, which are included in ‘Trade accounts receivable’	$	7,381	$	8,898	$	5,747	$	8,898
Current contract assets, which are included in “Prepaid and other assets”	$	638	$	759	$	843	$	759
Non-current contract assets, which are included in “other assets”	$	—	$	15	$	—	$	15
Contract liabilities, which are included in “Deferred revenue”	$	6,494	$	6,758	$	6,310	$	6,758

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Timing of revenue recognition may differ from timing of invoicing of customers. The Company records a receivable when revenue is recognized prior to receipt of cash payment and the Company has the unconditional right to such consideration, or unearned revenue when cash payments are received or due in advance of performance. For multi-year agreements, the Company generally invoices customers annually at the beginning of each annual service period.

The Company records net contract assets or contract liabilities on a contract-by-contract basis. The Company records a contract asset for unbilled revenue when the Company’s performance is in excess of amounts billed or billable. The Company classifies the net contract asset as either a current or non-current based on the expected timing of the Company’s right to bill under the terms of the contract. The current contract asset balance primarily relates to the net unbilled revenue balances with two significant customers, which the Company expects to be able to bill for within one year. The non-current contract asset balance consists of net unbilled revenue balances with one customer which the Company expects to be able to bill for in more than one year.

Changes in deferred revenue from contracts with customers were as follows:

	*Three Months*			*Six Months*
	*Ended March 31,*			*Ended June 30,*
	*2023*			*2023*
Balance at beginning of period	$	6,758		$	6,758
Deferral of revenue		5,514			4,909
Recognition of deferred revenue		(5,778	)		(5,357	)
Balance at end of period	$	6,494		$	6,310

As of June 30, 2023, the aggregate amount of unsatisfied, or partially satisfied, performance obligations from contracts with customers was $6.3 million. The Company expects to recognize ~~estimated revenues related~~approximately $6.0 million of its remaining performance obligations as revenue over the next 12 months. The remainder of the balance is expected to ~~performance obligation that are unsatisfied (or partially satisfied) in~~be recognized over the ~~amounts of approximately $3.4 million in~~next ~~2023,~~two ~~$1.3 million in~~to ~~2024,~~three ~~$1.0 million in~~ ~~2025~~ ~~and $0.8 million in~~ ~~2026.~~years.

Note 4 – Net Loss per Common Share

The Company’s basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period.

A summary of the Company’s calculation of net loss per share is as follows (in 000s, except for Net loss per share):

	*Three Months Ended*						*Three Months Ended*						*Six Months Ended*
	*March 31,*						*June 30,*						*June 30,*
	*2023*			*2022*			*2023*			*2022*			*2023*			*2022*
Net loss	$	(3,778	)	$	(3,545	)	$	(1,750	)	$	(3,118	)	$	(5,528	)	$	(6,663	)
Shares used in the calculation of basic and diluted net loss per share		25,261			25,160			25,261			25,185			25,261			25,172
Net loss per share - basic and diluted	$	(0.15	)	$	(0.14	)	$	(0.07	)	$	(0.12	)	$	(0.22	)	$	(0.26	)

The shares of the Company’s common stock issuable upon the exercise of stock options and vesting of restricted stock that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive are as follows:

	*March 31,*				*June 30,*
	*2023*		*2022*		*2023*		*2022*
Stock options		2,946,470		2,894,449		3,265,920		1,819,897
Total		2,946,470		2,894,449		3,265,920		1,819,897

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Note 5 – Inventories

The Company values its inventory at the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead and is determined using the first-in, first-out (FIFO) method. On a quarterly basis, management reviews inventory quantities on hand and analyzes the provision for excess and obsolete inventory based primarily on product expiration dating and estimated sales forecast, which is based on sales history and anticipated future demand. Inventory consisted of the following and includes an inventory reserve of $0.3 million at both ~~March 31,~~ June 30,2023and December 31, 2022.

March 31, 2023

December 31, 2022

Raw materials
$ 3,113 $ 2,658
Work in process
213 101
Finished Goods
1,802 2,892
Inventory Gross
5,128 5,651
Inventory Reserve
(262 ) (262 )
Inventory Net
$ 4,866 $ 5,389

	*June 30, 2023*			*December 31, 2022*
Raw materials	$	1,679		$	2,658
Work in process		20			101
Finished goods		2,811			2,892
Inventory gross		4,510			5,651
Inventory reserve		(262	)		(262	)
Inventory net	$	4,248		$	5,389

Note 6 – Goodwill

The Company tests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of the reporting unit is less than its carrying value. Factors the Company considers important, which could trigger an impairment of such asset, include the following:

• significant underperformance relative to historical or projected future operating results;

• significant changes in the manner or use of the assets or the strategy for the Company’s overall business;

• significant negative industry or economic trends;

• significant decline in the Company’s stock price for a sustained period; and

• a decline in the Company’s market capitalization below net book value.

The Company considered indicators of impairment, and there were no triggering events identified, no indication of impairment of the Company’s goodwill and no impairment charges recorded during the three months ended ~~March 31,~~June 30, 2023 or 2022.

Note 7 – Long-lived Assets

The Company assesses long-lived assets for impairment if events and circumstances indicate it is more likely than not that the fair value of the asset group is less than its carrying value.

There is no set interval or frequency for recoverability evaluation. Rather, the determination of when, if at all, an asset (or asset group) is evaluated for recoverability is based on “events and circumstances.” The following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset (or asset group) may not be recoverable and thus is to be evaluated for recoverability.

• A significant decrease in the market price of a long-lived asset (or asset group);

• A significant adverse change in the extent or manner in which a long-lived asset (or asset group) is being used or in its physical condition;

• A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (or asset group), including an adverse action or assessment by a regulator;

• An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (or asset group); and

• A current operating period, or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (or asset group).

The Company determined there were no such triggering events in the period ended ~~March 31,~~June 30, 2023.

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Note 8 – Lease Commitments

In accordance with ASC Topic 842, "Leases" ("ASC 842"), the Company determines if an arrangement contains a lease at inception. A lease is an operating or financing contract, or part of a contract, that conveys the right to control the use of an identified tangible asset for a period of time in exchange for consideration.

At lease inception, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for lease incentives. In determining the present value of the lease payments, the Company calculates an incremental borrowing rate, which is determined by estimating the Company’s applicable, fully collateralized borrowing rate, with adjustment as appropriate for lease term. The lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an extension option if the Company is reasonably certain to exercise that option.

Assumptions made by the Company at the commencement date of each lease are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

Right-of-use assets and obligations for leases with an initial term of 12 months or less are considered short term and are a) not recognized in the consolidated balance sheet and b) recognized as an expense on a straight-line basis over the lease term. The Company does not sublease any of its leased assets to third parties and the Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company has lessor agreements that contain lease and non-lease components, but the Company is accounting for the complete agreement under ASC 606 after determining that the non-lease component is the predominant component of these agreements.

ASC 842 includes a number of reassessment and remeasurement requirements for lessees based on certain triggering events or conditions. There were no impairment indicators identified during the three and sixmonths ended ~~March 31,~~June 30, 2023 that would require impairment testing of the Company’s right-of-use assets.

Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected to separate the accounting for lease components and non-lease components for real estate and equipment leases.

Components of Leases:

The Company has leases for office space and office equipment. The leases expire at various dates through 2028.

Three Months Ended

Six Months Ended

Lease Cost

Classification

March 31, 2023

Classification

June 30, 2023

Operating lease cost - Right of Use Asset

Operating expenses

216

Operating expenses

116

332

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Other information related to leases was as follows:

Three Months

Ended March 31, 2023

Cash paid from operating cash flows for operating leases
$ 232

	*Three Months*		*Six Months*
	*Ended June 30, 2023*		*Ended June 30, 2023*
Cash paid from operating cash flows for operating leases	$	161	$	248

	*As of ~~March 31,~~June 30,*
	*2023*
Weighted-average remaining lease term of operating leases (years)		~~3.6~~3.5
Weighted-average discount rate for operating leases		7.0	%

Maturity of the Company’s lease liabilities as of ~~March 31,~~June 30, 2023 was as follows:

2023	$	549		$	434
2024		846			846
2025		848			848
2026		749			749
2027		685			685
2028		172			172
Total lease payments		3,849			3,734
Less: effects of discounting		(641	)		(612	)
Total lease liabilities		3,208			3,122
Less: current portion of lease liabilities		569			644
Long-term lease liabilities	$	2,639		$	2,478

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Note 9– Stockholders Equity

Stock-Based Compensation

The Company granted options to purchase ~~541,142~~562,774 and 1,103,916 shares of the Company’s stock during the three and sixmonths ended ~~March 31,~~June 30, 2023. , respectively. The full amount of options were granted in the first ~~three~~six months of 2023.

The Company’s stock-based compensation expense, including options and restricted stock by category is as follows:

	*Three Months Ended*				*Three Months Ended*				*Six Months Ended*
	*March 31,*				*June 30,*				*June 30,*
	*2023*		*2022*		*2023*		*2022*		*2023*		*2022*
Cost of revenue	$	1	$	—	$	1	$	1	$	2	$	1
Engineering and product development		73		68		59		70		132		138
Marketing and sales		131		199		62		109		193		308
General and administrative		381		388		92		129		473		517
	$	586	$	655	$	214	$	309	$	800	$	964

During the three months ended March 31, 2023, the Company recorded incremental stock-based compensation of approximately $0.23 million as a result of modifications of certain stock option awards. The modifications related to extending the contractual life of certain stock options by five years for four grantees whose awards were scheduled to expire during 2023. In addition, the amount of time to exercise vested stock options upon termination for one grantee was extended from 6090 days to 24 months.

As of ~~March 31,~~June 30, 2023, there was approximately ~~$1.6~~$1.4 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted average period of ~~2.09~~1.67 years.

Options granted under the Company’s stock incentive plans were valued utilizing the Black-Scholes model using the following assumptions and had the following fair values:

	*Three Months Ended*						*Three Months Ended*						*Six Months Ended*
	*March 31,*						*June 30,*						*June 30,*
	*2023*			*2022*			*2023*			*2022*			*2023*			*2022*
Average risk-free interest rate		4.19	%		1.46	%		4.10	%		2.56	%		4.14	%		1.90	%
Expected dividend yield	None			None			None			None			None			None
Expected life (in years)		3.0			3.5			3.1			3.5			3.0			3.5
Expected volatility		72.69% - 77.53%			66.3% - 69.5%			77.7% - 96.3%			69.7% - 70.5%			72.7% to 96.3%			66.3% to 70.5%
Weighted average exercise price	$	2.16		$	5.22		$	1.38		$	5.19		$	1.76		$	5.22
Weighted average fair value	$	1.14		$	2.56		$	0.76		$	1.72		$	0.95		$	2.46

The Company’s 2023 and 2022 average expected volatility and average expected life is based on the average of the Company’s historical information. The risk-free rate is based on the rate of U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of option grants. The Company has paid no dividends on its common stock in the past and does not anticipate paying any dividends in the future.

The Company did not grant any shares of restricted stock during the three-months ended ~~March 31,~~June 30, 2023 or 2022. The Company’s restricted stock awards typically vest in either one year or three equal annual installments with the first installment vesting one year from the grant date. The grant date fair value for restricted stock awards is based on the quoted market value of Company stock on the grant date.

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A summary of stock option activity for all stock option plans for the period ended ~~March 31,~~June 30, 2023 is as follows:

	Number of			Weighted Average		Intrinsic		Number of			Weighted Average		Intrinsic
	Options			Exercise Price		Value		Options			Exercise Price		Value
Outstanding as of December 31, 2022		2,610,992		$	7.54	$	—		2,610,992		$	7.54	$	—
Granted		541,142		$	2.16	$	—		1,103,916		$	1.76	$	969
Exercised		—		$	—	$	—		—		$	—	$	—
Cancelled		(204,331	)	$	9.27	$	—		(448,988	)	$	7.80	$	—
Outstanding as of March 31, 2023		2,947,803		$	9.44	$	—
Outstanding as of June 30, 2023									3,265,920		$	5.61	$	969
Options Exercisable as of December 31, 2022		1,619,855		$	6.47	$	—		1,619,855		$	6.47	$	—
Options Exercisable as of March 31, 2023		1,985,026		$	7.44	$	—
Options Exercisable as of June 30, 2023									2,042,460		$	7.13	$	47

~~The Company issued 0 and 22,833 shares of common stock upon the exercise~~There were no exercises of outstanding stock options in the three ~~months ended~~ ~~March 31, 2023~~ and ~~2022,~~ ~~respectively. The Company received cash proceeds from stock option exercises of approximately $66,000 during the~~ ~~three~~six months ended ~~March 31, 2022.~~June 30,2023.

Employee Stock Purchase Plan

In December 2019, the Company’s Board of Directors adopted, and the stockholders approved the 2019 Employee Stock Purchase Plan (“ESPP”), effective January 1, 2020. The ESPP provides for the issuance of up 950,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The ESPP may be terminated or amended by the Board of Directors at any time. Certain amendments to the ESPP require stockholder approval. In October 2022, the Company suspended the ESPP such that the accumulation period from October 1, 2022 through December 31, 2022 and beyond will not occur.

~~Substantially all of the Company’s employees whose customary employment is for more than~~ 20 ~~hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is~~ ~~not~~ ~~eligible to purchase shares under the ESPP.~~

Prior to the Company's suspension of the ~~Plan,~~ESPP, any eligible employee could enroll as of the beginning of a respective quarterly accumulation period. Employees who participated in the ESPP were able to purchase shares by authorizing payroll deductions of up to 15% of their base compensation during an accumulation period. Unless the participating employee withdrew from participation, accumulated payroll deductions were used to purchase shares of common stock on the last business day of the accumulation period (the “Purchase Date”) at a price equal to 85% of the lower of the fair market value on (i) the Purchase Date or (ii) the first day of such accumulation period. Under applicable tax rules, no employee was able to purchase more than $25,000 worth of common stock, valued at the start of the purchase period, under the ESPP in any calendar year. Substantially all of the Company’s employees whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is not eligible to purchase shares under the ESPP.

The Company issued ~~9,381~~8,683 and 18,064 shares under the ESPP in the three~~-month period~~ and six month periods ended ~~March~~June ~~31,~~30, ~~2022.~~2022, respectively. The Company recorded approximately ~~$10,000~~$12,000 and $22,000 of stock-based compensation expense pursuant to ESPP for the three~~-month period~~ and six month periods ended ~~March~~June ~~31,~~30, ~~2022.~~2022, respectively.

Note 10– Income Taxes

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which the Company operates and the development of tax planning strategies during the year. As such, there can be significant volatility in interim tax provisions.

Income tax expense was approximately ~~$5,000~~$4,000 and ~~$1,000~~$9,000 for the three and sixmonths ended ~~March 31,~~ June 30,2023~~and~~ ~~2022~~, respectively. The effective tax rates for the three and sixmonths ended ~~March 31,~~ June 30,2023and 2022 were less than 1% in each period. The difference between the Company’s effective tax rates in 2023 and 2022 compared to the U.S. statutory tax rate of 21% is primarily due changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.

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Note 11 – Segment Reporting

Operating segments are the components of the Company’s business for which separate financial information is ~~available that~~available. This is evaluated regularly by the chief operating decision maker (“CODM”) ~~in deciding~~who decides how to allocate resources and ~~in assessing~~assess performance. The Company’s CODM is the chief executive officer. The Company’s operating segments are generally organized by the type of product or service offered and by geography. Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. The Company has determined there are two segments: Detection and Therapy.

The Detection segment consists of the Company’s advanced image analysis and workflow products, and the Therapy segment consists of the Company’s radiation therapy products, and related services. The primary factors used by the Company’s CODM to allocate resources are based on revenues, gross profit, operating income or loss, and earnings or loss before interest, taxes, depreciation, amortization, and other specific and non-recurring items of each segment. Included in segment operating income are stock compensation, amortization of technology and depreciation expense. There are no intersegment revenues.

The Company does not track its assets by operating segment and the CODM does not use asset information by segment to allocate resources or make operating decisions. Segment revenues, gross profit, segment operating income or loss, and a reconciliation of segment operating income or loss to GAAP loss before income tax is as follows:

	*Three Months Ended*						*Three Months Ended*						*Six Months Ended*
	*March 31,*						*June 30,*						*June 30,*
	*2023*			*2022*			*2023*			*2022*			*2023*			*2022*
Segment revenues:
Detection	$	4,334		$	5,521		$	4,171		$	5,289		$	8,506		$	10,809
Therapy		1,444			2,002			1,694			2,286			3,137			4,289
Total revenue	$	5,778		$	7,523		$	5,865		$	7,575		$	11,643		$	15,098
Segment gross profit:
Detection	$	3,544		$	4,661		$	3,398		$	4,554		$	6,942		$	9,215
Therapy		586			651			951			937			1,536			1,588
Segment gross profit	$	4,130		$	5,312		$	4,349		$	5,491		$	8,478		$	10,803
Segment operating income (loss):
Detection	$	(124	)	$	622		$	391		$	446		$	267		$	1,068
Therapy		(883	)		(1,209	)		593			(797	)		(290	)		(2,006	)
Segment operating income (loss):	$	(1,007	)	$	(587	)	$	984		$	(351	)	$	(23	)	$	(938	)
General, administrative, depreciation and amortization expense	$	(2,918	)	$	(2,935	)	$	(2,907	)	$	(2,763	)	$	(5,825	)	$	(5,698	)
Interest expense		—			(9	)		—			—			—			(1	)
Interest income		150			—			182			14			332			16
Other expense		2			(13	)		(5	)		(18	)		(3	)		(41	)
Loss before income tax	$	(3,773	)	$	(3,544	)	$	(1,746	)	$	(3,118	)	$	(5,519	)	$	(6,662	)

Note 12 – Commitments and Contingencies

Other Commitments

The Company is obligated to pay approximately ~~$4.2~~$5.5 million for firm purchase obligations to suppliers for future product and service deliverables and ~~$0.2~~$0.4 million for minimum royalty obligations.

Litigation

The Company may be a party to various legal proceedings and claims arising out of the ordinary course of its business. Although the final results of all such matters and claims cannot be predicted with certainty, the Company currently believes that there are no current proceedings or claims pending against it the ultimate resolution of which would have a material adverse effect on its financial condition or results of operations. However, should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, such matters could have a material adverse effect on the Company’s operating results and cash flows for that particular period. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, “Contingencies.” Legal costs are expensed as incurred.

Note 13 – Restructuring

On March 20, 2023, the Company committed to a restructuring plan intended to support its ~~long term~~long-term strategic goals and reduce operating expenses by further aligning its cost structure to focus on areas the Company believes are more likely to generate the best long-term results, in light of current industry and macroeconomic environments (the “RIF”). The Company reduced its workforce by approximately 28%, decreasing its headcount by approximately 23 employees, predominantly from the Company’s detection business unit. Xoft, Inc., a wholly-owned subsidiary of the Company, furloughed 12 of its employees, or approximately 50% of its workforce.

~~During~~The Company has incurred charges of $0.2 million related to the RIF, all of which were recognized during the ~~three~~six months ended ~~March 31, 2023,~~June 30, 2023. the Company incurred pre-tax charges to its statements of operations of $0.08 million related to cash severance and benefits. The Company expects to incur additional charges of $0.1 million during the remainder of the ~~2023~~ ~~and~~ no ~~additional charges beyond that time.~~ All of the incurred ~~and estimated future~~ charges are one-time, cash ~~expenses. Estimated~~expenses and were recorded primarily in Cost of revenue and Marketing and sales in the Company's Condensed Consolidated Statements of Operations. While the Company does not expect to record additional charges related to the RIF, the amounts are subject to change until finalized and the Company may incur additional costs during the remainder of 2023.

The Company's accrual for restructuring charges for the ~~three~~six months ended ~~March 31,~~June 30, 2023 was follows (in thousands):

Balance of as January 31, 2023	$	—
Balance as of January 1, 2023			$	—
Charges		76		178
Cash payments		—		(110)
Balance as of March 31, 2023	$	76
Balance as of June 30, 2023			$	68

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Note 14 – Subsequent Events

The Company has evaluated events and transactions subsequent to the balance sheet date to the date of the filing and is not aware of any events or transactions that occurred subsequent to the balance sheet date that would require recognition or disclosure in the consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, ~~2022.~~2022 filed with the SEC on March 31, 2023. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the section titled “Risk Factors,” our actual results could differ materially from those discussed in or implied by these forward-looking statements. ~~Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled~~ “~~Risk Factors.~~”Please also refer to the section titled “Special Note Regarding Forward Looking Statements.”

Special Note Regarding Forward Looking Statements

Certain information included in this Item 2 and elsewhere in this Form 10-Q that are not historical facts contain statements that may be deemed “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements involve or may involve a number of known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to the following: the continuing impact of the COVID-19 pandemic, the outcomes of our commercial and strategic arrangements (including our respective arrangements with Google Health and Radiology Partners), the continuing impact of military and political conflict in Eastern Europe, the ability to achieve business and strategic objectives, the risks of uncertainty of patent protection, the impact of supply and manufacturing constraints or difficulties, uncertainty of future sales levels, protection of patents and other proprietary rights, the impact of supply and manufacturing constraints or difficulties, product market acceptance, possible technological obsolescence of products, increased competition, litigation and/or government regulation, changes in Medicare reimbursement policies, risks relating to potential future debt obligations, competitive factors, the effects of a decline in the economy or markets served by the Company, and other risks detailed in this report and in the Company’s other filings with the United States Securities and Exchange Commission (the “SEC”). The words “believe”, “plan”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”, “should”, “would”, “could” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date the statement was made. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date of such statements.

Unless the context otherwise requires, the terms “iCAD”, the “Company”, “we”, “our”, “registrant”, and “us” mean iCAD, Inc. and its consolidated subsidiaries.

Results of Operations

Overview

iCAD, Inc. is a global medical technology company providing innovative cancer detection and therapy solutions. The Company reports in two segments: Detection and Therapy.

In the Detection segment, the Company’s solutions include (i) advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, and (ii) a solutions suite of high-performance, Artificial Intelligence and Computer-Aided Detection (CAD) systems and workflow solutions for 2D and 3D mammography, Magnetic Resonance Imaging (MRI) and Computed Tomography (CT) that focus on cancer detection, breast density assessment, and short-term cancer risk estimation.

In the Therapy segment, the Company offers the Xoft System, an isotope-free cancer treatment platform technology. The Xoft System can be used for the treatment of early-stage breast cancer, endometrial cancer, cervical cancer and nonmelanoma skin cancer and is in clinical studies for treatment of brain cancers.

The Company’s headquarters ~~are~~is located in Nashua, New Hampshire, with a manufacturing facility in New Hampshire, an operations, research, development, manufacturing and warehousing facility in San Jose, California, and an office in Lyon, France.

COVID-19 Impact

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, the United States and most countries of the world imposed some level of unprecedented restrictions such as travel bans and business closures which caused substantial reductions in economic activity. As a provider of devices and services to the health care industry, we believe our operations have been materially affected in all periods presented. While the worst of the disruptions seem to have subsided as of ~~March 31,~~June 30, 2023, and the pandemic emergency has been deemed to be over, we continue dealing with the impact of slowness in the overall economic recovery. Our expected results for the year ended December 31, 2023, including any interim or future periods, could reflect a continuing negative impact from continuing negative economic conditions.

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We believe that our current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of ~~$19.7~~$19.0 million at ~~March 31,~~June 30, 2023 and anticipated revenue and cash collections as well as cost savings actions taken.

Eastern European Conflict Impact

In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region has continued through ~~March 31,~~June 30, 2023 and beyond. Economic, civil, military and political uncertainty may arise or increase in regions where the Company operates or derives revenue. Further, countries from which we derive revenue may experience military action and/or civil and political unrest; may be subject to government export controls, economic sanctions, embargoes, or trade restrictions; and experience currency, inflation, and interest rate uncertainties. While the impact to us has been limited to date, it is not possible to predict the potential outcome should the conflict expand and/or additional sanctions be imposed. For the three and six months ended ~~March 31,~~June 30, 2023, approximately ~~15%~~20% and 17%, respectively, of the Company's revenue was derived from customers located outside the United States.

Xoft

As previously announced, the Company has engaged investment bankers to explore strategic options for its Therapy business line.

Critical Accounting Estimates

Our discussion and analysis of financial condition, results of operations, and cash flows are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to revenue recognition, allowances for credit losses on accounts receivable, inventory valuation and obsolescence, intangible assets, goodwill, income taxes, contingencies, and litigation. Additionally, we use assumptions and estimates in calculations to determine stock-based compensation, and evaluation of litigation. We base estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Due to the COVID-19 pandemic and its lingering impact, global armed conflicts and related political uncertainty, as well as dramatic inflation, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Other than as described herein, there have been no additional material changes to our critical accounting policies as discussed in our ~~2022~~ Annual Report on Form 10-K ~~(the “2022 10-K”).~~for the year ended December 31, 2022 filed with the SEC on March 31, 2023. For a comprehensive list of our critical accounting policies, reference should be made to the 2022 10-K.

Three and six months ended ~~March 31,~~June 30, 2023 compared to three and six months ended ~~March 31,~~June 30, 2022 (in thousands, except share data or as noted)

Revenue

Three months ended ~~March 31,~~June 30, 2023 and 2022:

	Three months ended March 31										Three Months Ended June 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Detection revenue
Product revenue	$	2,460	$	3,864	$	(1,404	)		(36.3	)%	$	2,301	$	3,467	$	(1,166	)		(33.6	)%
Service and supplies revenue		1,874		1,657		217			13.1	%		1,870		1,822		48			2.6	%
Subtotal		4,334		5,521		(1,187	)		(21.5	)%		4,171		5,289		(1,118	)		(21.1	)%
Therapy revenue
Product revenue		284		696		(412	)		(59.2	)%		343		1,008		(665	)		(66.0	)%
Service and supplies revenue		1,160		1,306		(146	)		(11.2	)%		1,351		1,278		73			5.7	%
Subtotal		1,444		2,002		(558	)		(27.9	)%		1,694		2,286		(592	)		(25.9	)%
Total revenue	$	5,778	$	7,523	$	(1,745	)		(23.2	)%	$	5,865	$	7,575	$	(1,710	)		(22.6	)%

Total revenue decreased by approximately $1.7 million or ~~(23.2%~~(22.6%), from ~~$7.5~~$7.6 million for the three months ended ~~March 31,~~June 30, 2022 to ~~$5.8~~$5.9 million for the three months ended ~~March 31,~~June 30, 2023. The decrease is due primarily to reduced demand and our shift to a subscription model as well as continued weakness in recovery to pre-pandemic levels prior to Covid-19. During the ~~first three months~~second quarter of 2023, we have seen an increased customer demand for subscription licenses, which currently remains a small portion of the Company’s total license revenue. We believe this trend could accelerate, and have begun to shift our marketing efforts to a subscription model. An increase in subscription revenue would negatively impact revenue in the short term, because revenue from subscription licenses are recognized over time, as opposed to being recognized upon delivery for perpetual licenses.

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Detection product revenue decreased by approximately ~~$1.4~~$1.1 million, or ~~(36.3%~~(33.6%), from ~~$3.9~~$3.5 million for the three months ended ~~March 31,~~June 30, 2022 to ~~$2.5~~$2.3 million for the three months ended ~~March 31,~~June 30, 2023. The overall decrease is due primarily to the impact of our transition to a subscription model and ongoing challenges faced in the ~~economic recovery~~economy.

Detection service and supplies revenue, which is primarily sold to direct customers, was flat at approximately $1.8 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2023.

Therapy product revenue decreased by approximately $0.7 million, or (66.0)%, from $1.0 million for the three months ended June 30, 2022 to $0.3 million for the three months ended June 30, 2023. Therapy product revenue is related to the sale of our Axxent systems and can vary significantly from quarter to quarter due to changes in the ~~COVID 19 pandemic.~~number of units sold and the average selling price.

Therapy service and supplies revenue increase by approximately $0.1 million, or 5.7%, from $1.3 million for the three months ended June 30, 2022 to $1.4 million for the three months ended June 30, 2023. The increase was due primarily to timing related to service and supplies agreements.

Six Months Ended June 30, 2023 and 2022:

	Six Months Ended June 30,
	2023		2022		$ Change			% Change
Detection revenue
Product revenue	$	4,762	$	7,330	$	(2,568	)		(35.0	)%
Service and supplies revenue		3,744		3,479		265			7.6	%
Subtotal		8,506		10,809		(2,303	)		(21.3	)%
Therapy revenue
Product revenue		626		1,705		(1,079	)		(63.3	)%
Service and supplies revenue		2,511		2,584		(73	)		(2.8	)%
Subtotal		3,137		4,289		(1,152	)		(26.9	)%
Total revenue	$	11,643	$	15,098	$	(3,455	)		(22.9	)%

Total revenue decreased by approximately $3.5 million or (22.9%), from $15.1 million for the six months ended June 30, 2022 to $11.6 million for the six months ended June 30, 2023. The decrease is due primarily to reduced demand and our shift to a subscription model as well as continued weakness in recovery to pre-pandemic levels prior to Covid-19. During the first six months of 2023, we have seen an increased customer demand for subscription licenses, which currently remains a small portion of the Company’s total license revenue. We believe this trend could accelerate, and have begun to shift our marketing efforts to a subscription model. An increase in subscription revenue would negatively impact revenue in the short term, because revenue from subscription licenses are recognized over time, as opposed to being recognized upon delivery for perpetual licenses.

Detection product revenue decreased by approximately $2.6 million, or (35.0%), from $7.3 million for the six months ended June 30, 2022 to $4.7 million for the six months ended June 30, 2023. The overall decrease is due primarily to the impact of our transition to a subscription model and ongoing challenges faced in the economy.

Detection service and supplies revenue, which is primarily sold to direct customers, increased by approximately ~~$0.2~~$0.3 million, or ~~13.1%~~7.6%, from ~~$1.7~~$3.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 to ~~$1.9~~$3.7 million in the ~~three~~six months ended ~~March 31,~~June 30, 2023. The increase is due primarily to the timing of delivery on service and supply agreements.

Therapy product revenue decreased by approximately ~~$0.4~~$1.1 million, or ~~(59.2)~~(66.3)%, from ~~$0.7~~$1.7 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 to ~~$0.3~~$0.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023. Therapy product revenue is related to the sale of our Axxent systems and can vary significantly from quarter to quarter due to changes in the number of units sold and the average selling price.

Therapy service and supplies revenue decreased by approximately $0.1 million, or ~~(11.2)~~(2.8)%, from ~~$1.3~~$2.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 to ~~$1.2~~$2.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023. We saw lower service and supplies revenues due to lower balloon sales in the ~~three~~six months ended ~~March 31,~~June 30, 2023 as compared to the ~~three~~six months ended ~~March 31,~~June 30, 2022.

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Cost of Revenue and Gross Profit:

Three months ended ~~March 31,~~June 30, 2023 and 2022:

Cost of Revenue and Gross Profit:	Three months ended March 31										Three Months Ended June 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Products	$	586	$	1,087	$	(501	)		(46.1	)%	$	461	$	1,008	$	(547	)		(54.3	)%
Service and supplies		993		1,049		(56	)		(5.3	)%		1,000		1,001		(1	)		(0.1	)%
Amortization and depreciation		69		75		(6	)		(8.0	)%		55		75		(20	)		(26.7	)%
Total cost of revenue	$	1,648	$	2,211	$	(563	)		(25.5	)%	$	1,516	$	2,084	$	(568	)		(27.3	)%

	Three months ended March 31										Three Months Ended June 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Detection gross profit	$	3,544	$	4,661	$	(1,117	)		(24.0	)%	$	3,398	$	4,554	$	(1,156	)		(25.4	)%
Therapy gross profit		586		651		(65	)		(10.0	)%		951		937		14			1.5	%
Gross profit	$	4,130	$	5,312	$	(1,182	)		(22.3	)%	$	4,349	$	5,491	$	(1,142	)		(20.8	)%

Gross profit for the three months ended ~~March 31,~~June 30, 2023 was approximately ~~$4.1~~$4.3 million, or ~~71.4%~~74.2% of revenue, as compared to ~~$5.3~~$5.5 million, or ~~70.1%~~72.5% of revenue, for the three months ended ~~March 31,~~June 30, 2022. Detection gross profit percentage ~~increased~~decreased from ~~84.2%~~86.1% for the three months ended ~~March 31,~~June 30, 2022 to ~~85.0%~~81.5% for the three months ended ~~March 31,~~June 30, 2023. Therapy gross profit percentage ~~decreased~~increased from ~~49.3%~~40.9% for the three months ended ~~March 31,~~June 30, 2022 to ~~33.5%~~56.1% for the three months ended ~~March 31,~~June 30, 2023. Detection gross profit represented ~~86.0%~~82.9% of total Company gross profit for the three months ended ~~March 31,~~June 30, 2022 compared to ~~87.7%~~78.1% for the three months ended ~~March 31,~~June 30, 2023.

Cost of products decreased by approximately $0.5 million, or ~~(46.1%)~~(54.3)%, from ~~$1.1~~$1.0 million for the three months ended ~~March 31,~~June 30, 2022 to ~~$0.6~~$0.5 million for the three months ended ~~March 31,~~June 30, 2023. The decrease is due primarily to lower product sales. Cost of product revenue as a percentage of product revenue was approximately ~~21.4%~~22.5% for the three months ended ~~March 31,~~June 30, 2022 as compared to ~~30.1%~~17.4% for the three months ended ~~March 31,~~June 30, 2023. The product mix in the three-month period ended ~~March 31,~~June 30, 2023 compared to the same period in 2022 included more products with a ~~higher~~lower relative cost of sales.

Cost of service and supplies ~~decreased by approximately $0.06 million, or (5.3%) from $1.1 million for the three months ended March 31, 2022 to~~was flat at $1.0 million for the three months ended ~~March 31,~~June 30, 2022 and June 30, 2023. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately ~~32.7%~~16.5% for the three months ended ~~March 31,~~June 30, 2022 as compared to ~~22.6%~~31.0% for the three months ended ~~March 31,~~June 30, 2023. The cost of service and supplies as a percentage of revenue decreased primarily as a result of the relative mix of service and supplies in the comparable periods.

Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately $0.1 million for the three months ended ~~March 31,~~June 30, 2023 and 2022.

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Six Months Ended June 30, 2023 and 2022:

Cost of Revenue and Gross Profit:	Six Months Ended June 30,
	2023		2022		$ Change			% Change
Products	$	1,047	$	2,095	$	(1,048	)		(50.0	)%
Service and supplies		1,993		2,050		(57	)		(2.8	)%
Amortization and depreciation		125		150		(25	)		(16.7	)%
Total cost of revenue	$	3,165	$	4,295	$	(1,130	)		(26.3	)%

	Six Months Ended June 30,
	2023		2022		$ Change			% Change
Detection gross profit	$	6,942	$	9,215	$	(2,273	)		(24.7	)%
Therapy gross profit		1,536		1,588		(52	)		(3.3	)%
Gross profit	$	8,478	$	10,803	$	(2,325	)		(21.5	)%

Gross profit for the six months ended June 30, 2023 was approximately $8.5 million, or 72.8% of revenue, as compared to $10.8 million, or 71.6% of revenue, for the six months ended June 30, 2022. Detection gross profit percentage decreased from 85.3% for the six months ended June 30, 2022 to 81.6% for the six months ended June 30, 2023. Therapy gross profit percentage increased from 37.0% for the six months ended June 30, 2022 to 48.9% for the six months ended June 30, 2023. Detection gross profit represented 85.3% of total Company gross profit for the six months ended June 30, 2022 compared to 81.9% for the six months ended June 30, 2023.

Cost of products decreased by approximately $1.0 million, or (50.0)%, from $2.1 million for the six months ended June 30, 2022 to $1.0 million for the six months ended June 30, 2023. The decrease is due primarily to lower product sales. Cost of product revenue as a percentage of product revenue was approximately 23.2% for the six months ended June 30, 2022 as compared to 19.4% for the six months ended June 30, 2023. The product mix in the six-month period ended June 30, 2023 compared to the same period in 2022 included more products with a lower relative cost of sales.

Cost of service and supplies decreased by approximately $0.1 million, or (2.8)% from $2.1 million for the six months ended June 30, 2022 to $2.0 million for the six months ended June 30, 2023. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 33.8% for the six months ended June 30, 2022 as compared to 31.9% for the six months ended June 30, 2023. The cost of service and supplies as a percentage of revenue decreased primarily as a result of the relative mix of service and supplies in the comparable periods.

Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately $0.1 million for the six months ended June 30, 2023 and 2022.

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Operating Expenses:

Three months ended ~~March 31,~~June 30, 2023 and 2022:

	Three Months Ended March 31,										Three Months Ended June 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Operating expenses:
Engineering and product development	$	2,281	$	2,275	$	6			0.3	%	$	1,263	$	2,367	$	(1,104	)		(46.6	)%
Marketing and sales		2,857		3,565		(708	)		(19.9	)%		2,112		3,435		(1,323	)		(38.5	)%
General and administrative		2,862		2,931		(69	)		(2.4	)%		2,832		2,742		90			3.3	%
Amortization and depreciation		55		63		(8	)		(12.7	)%		65		61		4			6.6	%
Total operating expenses	$	8,055	$	8,834	$	(779	)		(8.8	)%	$	6,272	$	8,605	$	(2,333	)		(27.1	)%

Operating expenses decreased by approximately ~~$0.1~~$2.3 million, or ~~(8.8%)~~(27.1)%, from ~~$8.8~~$8.6 million in the three months ended ~~March 31,~~June 30, 2022 to ~~$8.1~~$6.3 million in the three months ended ~~March 31,~~June 30, 2023.

Engineering and Product Development. Engineering and product development costs ~~were consistent at~~decreased by approximately ~~$2.3~~$1.1 million, ~~for~~or (46.6)%, from $2.4 million in the three months ended ~~March 31,~~June 30, 2022 ~~and March 31,~~to $1.3 million in the three months ended June 30, 2023. The decrease is due primarily to cost savings actions taken by management.

Marketing and Sales. Marketing and sales expenses decreased by approximately ~~$0.7~~$1.3 million, or ~~(19.9%)~~(38.5)%, from ~~$3.6~~$3.4 million in the three months ended ~~March 31,~~June 30, 2022 to ~~$2.9~~$2.1 million in the three months ended ~~March 31,~~June 30, 2023. The decrease was primarily related to lower headcount and commission expense during the comparable periods.

General and Administrative. General and administrative expenses were consistent at approximately ~~$2.9~~$2.8 million for the three months ended ~~March 31,~~June 30, 2022 and the three months ended ~~March 31,~~June 30, 2023.

Amortization and Depreciation. Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, were flat for the three months ended ~~March 31,~~June 30, 2023 and 2022.

Six Months Ended June 30, 2023 and 2022:

	Six Months Ended June 30,
	2023		2022		$ Change			% Change
Operating expenses:
Engineering and product development	$	3,544	$	4,642	$	(1,098	)		(23.7	)%
Marketing and sales		4,967		7,000		(2,033	)		(29.0	)%
General and administrative		5,695		5,673		22			0.4	%
Amortization and depreciation		120		124		(4	)		(3.2	)%
Total operating expenses	$	14,326	$	17,439	$	(3,113	)		(17.9	)%

Operating expenses decreased by approximately $3.1 million, or (17.9)%, from $17.4 million in the six months ended June 30, 2022 to $14.3 million in the six months ended June 30, 2023.

Engineering and Product Development. Engineering and product development costs decreased by approximately $1.1 million, or (23.7)%, from $4.6 million in the three months ended June 30, 2022 to $3.5 million in the three months ended June 30, 2023. The decrease is due primarily to cost savings actions taken by management.

Marketing and Sales. Marketing and sales expenses decreased by approximately $2.0 million, or (29.0)%, from $7.0 million in the six months ended June 30, 2022 to $5.0 million in the six months ended June 30, 2023. The decrease was primarily related to lower headcount and commission expense during the comparable periods.

General and Administrative. General and administrative expenses were consistent at approximately $5.7 million for the six months ended June 30, 2022 and the six months ended June 30, 2023.

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Other Income and Expense:

Three months ended ~~March 31,~~June 30, 2023 and 2022:

Other Income and Expense:

Three months ended March 31

2023

2022

$ Change

% Change

Interest expense
$ — $ (9 ) $ 9 (100 )%
Interest income
$ 150 $ — $ 150 100 %
Other income (expense)
2 (13 ) 15 (115.4 )%
$ 152 $ (22 ) $ 174 (790.9 )%
Tax (expense)
$ (5 ) $ (1 ) $ (4 ) 400.0 %

~~Interest expense~~~~. Interest expense was approximately $(9,000) for the three months ended March 31, 2022. There was no interest expense during the three months ended March 31, 2023.~~

Other Income and Expense:
	Three Months Ended June 30,
	2023			2022			$ Change			% Change
Interest income	$	182		$	14		$	168			1200.0	%
Other income (expense)		(5	)		(18	)		13			(72.2	)%
	$	177		$	(4	)	$	181			(4525.0	)%
Tax (expense) benefit	$	(4	)	$	—		$	(4	)		(100.0	)%

Interest income. Interest income increased by approximately ~~$150,000,~~$168,000, or ~~100%~~1,200%, from ~~zero~~$14,000 for the three months ended ~~March 31,~~June 30, 2022 to ~~$150,000~~$182,000 for the three months ended ~~March 31,~~June 30, 2023. The increase results from higher interest rates in 2023 compared to 2022.

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Other income (expense). Other income (expense) was a loss of ~~$(13,000)~~$(18,000) during the three months ended ~~March 31,~~June 30, 2022 compared to ~~income~~a loss of ~~$2,000~~$5,000 during the three months ended ~~March 31,~~June 30, 2023. The change is driven by lower foreign exchange losses recorded in 2023 compared to 2022.

Tax (expense). Income tax expense was ~~$5,000~~$(4,000) and ~~$1,000~~$0 for the three months ended ~~March 31,~~June 30, 2023 ~~and 2022~~, ~~respectively.~~ . The effective tax rates for the three months ended ~~March 31,~~June 30, 2023 and 2022 were less than 1% in each period. The difference between the Company’s effective tax rates in 2023 and 2022 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.

Six Months Ended June 30, 2023 and 2022:

Other Income and Expense:
	Six Months Ended June 30,
	2023			2022			$ Change			% Change
Interest expense	$	—		$	(1	)	$	1			(100.0	)%
Interest income		332			16			316			1975.0	%
Other income (loss)		(3	)		(41	)		38			(92.7	)%
	$	329		$	(26	)	$	355			(1365.4	)%
Tax benefit (expense)	$	(9	)	$	(1	)	$	(8	)		800.0	%

Interest expense. Interest expense was approximately $(1,000) for the six months ended June 30, 2022. There was no interest expense during the six months ended June 30, 2023.

Interest income. Interest income increased by approximately $316,000, or 1,975%, from $16,000 for the six months ended June 30, 2022 to $332,000 for the six months ended June 30, 2023. The increase results from higher interest rates in 2023 compared to 2022.

Other income (expense). Other income (expense) was a loss of $(41,000) during the six months ended June 30, 2022 compared to a loss of $3,000 during the six months ended June 30, 2023. The change is driven by lower foreign exchange losses recorded in 2023 compared to 2022.

Tax (expense). Income tax expense was $9,000 and $1,000 for the six months ended June 30, 2023 and 2022, respectively. The effective tax rates for the six months ended June 30, 2023 and 2022 were less than 1% in each period. The difference between the Company’s effective tax rates in 2023 and 2022 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.

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Liquidity and Capital Resources (in thousands, except as noted)

The Company believes that its cash and cash equivalents balance of ~~$19.7~~$19.0 million as of ~~March 31,~~June 30, 2023, and projected cash balances are sufficient to sustain operations through at least the next 12 months. The Company’s ability to generate cash adequate to meet its future capital requirements will depend primarily on operating cash flow. If sales or cash collections are reduced from current expectations, or if expenses and cash requirements are increased, the Company may require additional financing, although there are no guarantees that the Company will be able to obtain the financing if necessary. We will continue to closely monitor liquidity and the capital and credit markets.

The Company had net working capital of ~~$21.3~~$19.5 million at ~~March 31,~~June 30, 2023. The ratio of current assets to current liabilities at ~~March 31,~~June 30, 2023 and December 31, 2022 was ~~2.66~~2.64 and 2.84, respectively.

	Three Months Ended March 31,						Six Months Ended June 30,
	2023			2022			2023			2022
Net cash used for operating activities	$	(1,528	)	$	(4,449	)	$	(1,933	)	$	(7,009	)
Net cash used for investing activities		(122	)		(161	)		(343	)		(265	)
Net cash provided by financing activities		—			126			—			172
Decrease in cash and equivalents	$	(1,650	)	$	(4,484	)	$	(2,276	)	$	(7,102	)

Net cash used for operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023 was ~~$1.5~~$1.9 million, compared to ~~$4.4~~$7.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The improvement in net cash used for operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023 resulted primarily from the Company’s focus on collections of accounts receivable and ongoing cost saving initiatives. We expect that net cash used for or provided by operating activities to fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, the timing of when we recognize revenue, collections of accounts receivable, inventory expansion due to supply chain risk, and the timing of other payments.

Net cash used for investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023 was ~~$122,000,~~$343,000, compared to ~~$161,000~~$265,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The net cash used for investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022 is primarily for purchases of property and equipment.

Net cash provided by financing activities for ~~three~~six months ended ~~March 31,~~June 30, 2022 was ~~$126,000~~$172,000 related to the issuance of common stock pursuant to the Company’s stock option and employee stock purchase plans.

As previously announced, the Company has engaged investment bankers to explore strategic options for its Therapy business line.

Recent Accounting Pronouncements

See Note 1 to the Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company believes that it is not subject to material foreign currency exchange rate fluctuations, as substantially all of its sales and expenses are denominated in the U.S. dollar. The Company does not hold derivative securities and has not entered into contracts embedded with derivative instruments, such as foreign currency and interest rate swaps, options, forwards, futures, collars or warrants, either to hedge existing risks or for speculative purposes.Not applicable.

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Item 4. Controls and Procedures

The Company’s management, with the participation of its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, as of ~~March 31,~~June 30, 2023, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange ~~Act of 1934)~~Act) were effective at a reasonable level of assurance.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations to enhance, where necessary, its controls and procedures.

The Company’s principal executive officer and principal financial officer conducted an evaluation of the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) and have determined there areThere were no changes ~~in its~~to the Company's internal controls over financial reporting during the quarter ended ~~March 31,~~June 30, 2023 that have materially affected or which are reasonably likely to materially affect internal control over financial reporting.

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PART II OTHER

INFORMATION

Item 1A. Risk Factors:

Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which we strongly encourage you to review. ~~There~~Other than described below, there have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.

We have been informed that the FDA requires additional information to determine appropriate regulatory requirements of our ProFound AI® Risk product based on revised FDA guidance and have paused U.S. sales of the product.

We have been informed that under the FDA’s current position, as reflected in revised FDA guidance, ProFound AI® Risk meets the definition of device by section 520(o)(1)(E) of the Federal Food, Drug, and Cosmetic Act (“FD&C Act”). The FDA has requested additional information from us to determine the applicable regulatory requirements. Under the previous FDA guidance, we believed that ProFound AI® Risk met the definition of a device and at that time, based on the FDA’s then guidance, FDA did not intend to enforce compliance with the applicable requirements of the FD&C Act, including, but not limited to, premarket clearance and premarket approval requirements. While there have been no adverse safety issues reported in the U.S. by our customers which have deployed ProFound AI Risk, we have paused sales of ProFound AI® Risk in the U.S. and will inform customers of our need to provide the FDA with additional information under their revised guidance. However, we do not currently intend to recall any licenses previously sold and granted.

Sales of ProFound AI® Risk have not been significant to our aggregate sales and we have only made sales to a limited number of customers. Note that ProFound AI® Risk is, however, approved for use in countries outside of the U.S. including Canada and the European Union, and we have received no reports of safety issues from any users. We are presently determining the optimal regulatory strategy designed to satisfy applicable FDA requirements. The changes in FDA guidance applicable to ProFound AI® Risk do not affect sales of our other products which include our primary product ProFound AI® Detection as well as ProFound AI® Density.

We may not be able to complete all activities necessary to comply with FDA guidance on a timely basis or without expending significant resources. We will submit a 513(g) Request for Information regarding the requirements applicable to the product under the FD&C Act. We are unable to control the timing of FDA action and we may be required to make additional submissions within certain timeframes. We also do not know whether or not the FDA will change its current thinking regarding the regulatory requirements applicable to ProFound AI® Risk. If the FDA determines that we have not satisfied its requirements, any failure of ours to address such requirements or provide requested documentation could disrupt our business operations related to the ProFound AI® Risk product and the timing of our commercialization efforts and could have a material adverse effect on our financial condition and operating results. In addition, the FDA could take action against us for the period of time from the change in FDA guidance applicable to ProFound AI® Risk to the present time, in connection with our decision not to recall the licenses previously sold and granted and could require us to recall the product in the future . We may also be at risk from claims made by our customers who have commenced sales of ProFound AI® Risk to their customers.

Item5.Other Information

On August 11, 2023, the Company entered into an at-the-market issuance sales agreement (the “Sales Agreement”) with Craig-Hallum Capital Group LLC (the “Agent”), whereby the Company, at its discretion, may issue and sell up to $25 million of shares (the “Shares”) of the Company’s common stock, par value $0.01 per share, from time to time, by any method deemed to be an “at-the-market” offering (the “ATM Offering”), as defined in Rule 415 of the Securities Act, or any other method specified in the Sales Agreement. Shortly after the filing of this Quarterly Report on Form 10-Q, the Company will be filing a prospectus supplement relating to the ATM Offering with the Commission under the Securities Act. The Shares will be issued pursuant to the Company’s previously filed and effective Registration Statement on Form S-3 (File No. 333-273459), which was initially filed with the SEC on July 26, 2023, and declared effective on August 9, 2023. The Company intends to use the net proceeds from the ATM Offering, if any, to continue to fund the ongoing clinical development of its product candidates and for other general corporate and working capital purposes.

The Company is not obligated to sell any Shares pursuant to the Sales Agreement. Subject to the terms and conditions of the Sales Agreement, Agent will use commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal law, rules and regulations and the rules of The Nasdaq Capital Market (“Nasdaq”), to sell Shares from time to time based upon the Company’s instructions, including any price, time or size limits or other customary parameters or conditions the Company may impose.

Under the Sales Agreement, Agent may sell Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act, and the rules and regulations thereunder, including, without limitation, sales made directly on or through Nasdaq, on or through any other existing trading market for the Shares or to or through a market maker. If expressly authorized by the Company, Agent may also sell Shares in negotiated transactions.

The Sales Agreement will terminate upon the earlier of (i) the issuance and sale of all of the Shares through Agent on the terms and subject to the conditions set forth in the Sales Agreement or (ii) termination of the Sales Agreement as otherwise permitted thereby. The Sales Agreement may be terminated at any time by the Company upon five days’ prior notice, or by Agent upon ten days’ prior written notice, or by Agent at any time in certain circumstances, including the occurrence of a material adverse effect on the Company.

The Company has agreed to pay Agent a commission equal to 3.0% of the gross proceeds from the sales of Shares pursuant to the Sales Agreement and has agreed to provide Agent with customary indemnification and contribution rights.

The foregoing summary of the Sales Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Sales Agreement, a copy of which is filed as Exhibit 1.1 hereto and incorporated herein by reference. The Sales Agreement contains representations and warranties that the parties made to, and solely for the benefit of, the other in the context of all of the terms and conditions of the Sales Agreement and in the context of the specific relationship between the parties. The provisions of the Sales Agreement, including the representations and warranties contained therein, are not for the benefit of any party other than the parties to the Sales Agreement and are not intended as a document for investors and the public to obtain factual information about the Company’s current state of affairs. Rather, investors and the public should look to other disclosures contained in the Company’s filings with the SEC.

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Item 6. Exhibits

Exhibit No.		Description

~~10.1~~1.1*		~~Employment agreement dated March 10, 2023, by and~~At-The-Market Issuance Sales Agreement between iCAD, Inc. and ~~Dana Brown (filed as Exhibit 10(p) to the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 30,~~Craig-Hallum Capital Group LLC dated August 11, 2023.

~~10.2~~5.1*		~~Separation~~Opinion of Dentons US LLP.

10.1		Employment agreement ~~dated March 10, 2023, by and~~ between iCAD, Inc. and ~~Stacey Stevens~~Eric Lonnqvist dated April 13, 2023 (filed as ~~Exhibit 10(q)~~exhibit 10.1 to the ~~Annual~~Company's Current Report on Form ~~10-K for the year ended December 31, 2022~~8-K filed with the SEC on ~~March 31, 2023.~~April 17, 2023).

23.1		Consent of Dentons US LLP (included in Exhibit 5.1).

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*		The following materials formatted in Inline XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended ~~March 31,~~June 30, 2023 and 2022 and (v) Notes to Condensed Consolidated Financial Statements.

104*		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

* Filed herewith

** Furnished herewith

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	iCAD, Inc.
	(Registrant)

Date: ~~May 15,~~August 11, 2023	By:	/s/ Dana Brown
	Name: Title:	Dana Brown Chief Executive Officer (Principal Executive Officer)

Date: ~~May 15,~~August 11, 2023	By:	/s/ Eric Lonnqvist
	Name: Title:	Eric Lonnqvist Chief Financial Officer (Principal Financial Officer)

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	*Three Months*
	*Ended March 31, 2023*
Cash paid from operating cash flows for operating leases	$	232